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SharkNinja: Disruption with chips

"Disruption spans across all industries," says Paul Markham, Investment Director, Global Equities, citing SharkNinja's case study to illustrate his strategy.

14 August 2024

Disruption is indeed not confined to just technology companies. It spans across all industries, including financial services, healthcare and more. While technology will likely remain an enabler for most companies, being disruptive today often requires effective use of technology, but not necessarily as the primary focus of a business. True disruption may stem from secondary technology applications, supported by visionary management teams with strong execution capabilities and a deep understanding of evolving consumer needs.

Thematic ideas

Disruption is a universal phenomenon that transcends industry boundaries, impacting sectors as varied as financial services and healthcare. Blockchain technology harbours the potential to revolutionise the banking system by streamlining transactions and removing the need for intermediaries and traditional centralised ledgers. In the healthcare sector, recent advancements in treatments for diabetes and weight loss hold promise for reducing healthcare costs, easing government financial burdens, and enhancing individual health outcomes. While disruption is often linked with smaller, emerging companies, it is important to recognise that large-cap entities can also be agents of change by capitalising on their technological prowess, adept management and deep data-driven consumer insights. Wearable technologies like smartwatches and sensors are at the forefront of collecting and analysing data on human activity and health, paving the way for personalised healthcare solutions that cater to individual preferences, thereby improving healthcare delivery and research.

SharkNinja: pioneering growth through continual innovation

SharkNinja is a good illustration of industrial diversification in disruption. My recent visit to their research and development (R&D) hub at Battersea Power Station was a real experience and quite exciting. Although an American company, their global presence is marked by three R&D hubs that ensure 24-hour innovation across Boston, China and London. The company's name is formed by combining its two primary brands: Shark and Ninja. Impressively, Shark has become the top-selling vacuum cleaner brand in the US, Canada and the UK, challenging the dominance of brands like Dyson and Hoover.

The global home appliances market size has experienced a robust growth of 10.0% between 20221 to 20232. SharkNinja, a key player in this sector, has outpaced the market with an impressive Adjusted Net Sales increase of over 15% during the same time frame3. In the fiscal year ending 31 December 2023, Cooking and Beverage Appliances saw a net sales increase of 33.7%. This remarkable growth, particularly in Europe and more so in the UK with air fryers, where the company has solidified the leading market position.4 Their upcoming store-in-store concept in 100 Currys stores across the UK underscores the high demand for their products, and their willingness to leverage existing distribution channels to meet it.

Revolutionising smaller kitchens

SharkNinja's R&D excellence is showcased in their swift response to consumer insights, leading to the creation of a compact, stacked air fryer that became the UK's top seller. Their commitment to innovation is further highlighted by their latest design, perfect for smaller kitchens with limited worktop space, which features a minimal footprint and a unique stacked drawer system. This space-saving solution also offers versatility with a model that combines two drawers into one for larger meals.

Apart from R&D, SharkNinja's success can be partly attributed to effective use of their website for segmentation work and promotions. This strategy has allowed them to gain considerable traction, disrupting the market in a way that has not been seen since the microwave oven's introduction. Air fryers, like those from Ninja, have become increasingly popular due to their energy efficiency, speed, convenience and versatility, allowing users to bake, fry, grill and roast with ease. This is especially relevant in a society with more single-person households and later family formations. Ninja's air fryers, starting as inexpensively as USD 59, offer an affordable and versatile cooking solution, making them an attractive option for students, pensioners and others living alone. The air fryer market is a prime example of disruption, where innovative products meet changing consumer lifestyles and needs.

SharkNinja beats first-quarter goals

Projections indicate that the revenue in the Household Appliances market worldwide will continue to grow at a compound annual growth rate (CAGR) of 4.9% from 2024 to 2029.5 However, SharkNinja is setting a remarkable precedent with a growth rate of more than 20% In the first quarter of 2024 alone, reporting Net sales that have soared by 24.7% to USD 1,066.2 million, compared to USD 855.3 million in the first quarter last year.67 This indicates that the company is outperforming the market average by a substantial margin, likely due to their innovative products, strategic pricing, and refusal to grant exclusivity, which allows them to sell through all channels. Their growth rate is a clear indicator of their disruptive presence in the market.

Robust second-quarter results prompt upward revisions of full-year outlook

On 8 August 2024, SharkNinja delivered strong second-quarter results that outperformed Wall Street's predictions, leading to an upgraded full-year outlook. Net sales rose by 31.4% to USD1,248.7 million, compared to USD 950.3 million in the same quarter of the previous year. Adjusted EBITDA grew by 47.6% to USD 167.7 million.8 These very solid figures demonstrate SharkNinja's ongoing operational momentum; and the company raised sales and profit forecasts, reinforcing our optimism in its strategic direction.

Why has this suddenly happened? SharkNinja's disruption in the domestic appliance market can be attributed to their identification of complacency among legacy brands, a commitment to constant product development, and a clever pricing strategy that positions them just above mid-range, enticing consumers to trade up for quality. Their refusal to grant exclusivity to retailers, even in the face of potential loss of stockists, further demonstrates their confidence and strategic market positioning.9

Disruption

Disruption has been a constant in the appliance space, with companies like Dyson pioneering the market 20 years ago. Today, the consumer appliance landscape is crowded with brands competing across a spectrum from low-end to high-end, including Miele and Dyson. SharkNinja, in particular, has made significant strides, becoming a leading brand in a remarkably short period across many markets. This rapid rise exemplifies the transformative power of technology in traditional industries.

The rise of SharkNinja is a powerful endorsement of the strategy of using technology as a tool for disruption, rather than being a disruptor within the technology industry itself. This approach is increasingly prevalent as more companies leverage technology to establish their niche and redefine their industries. This shift represents a broader trend of evolution and innovation, where the application of technology is not confined to technology companies but is a strategic advantage for any player with the foresight to utilise it effectively.

SharkNinja's ascent in the appliance industry is not an isolated incident but part of a larger narrative where technology is the catalyst for change. It is a compelling reminder that in the modern business landscape, disruption is not just about creating new tech but about how technology is employed to create a competitive edge and deliver value to consumers. This is just one of many examples I am seeing unfold, signalling a shift in how industries evolve and thrive in an increasingly digital world.

Source: Straits Research. https://straitsresearch.com/report/home-appliances-market
2Source: Fortune Business Insights. https://www.fortunebusinessinsights.com/home-appliances-market-107020
3Source: SharkNinja 2023 Annual Report. https://s202.q4cdn.com/977000893/files/doc_financials/2023/ar/SN-2023-Annual-Report-Final.pdf
4Source: SharkNinja 2023 Annual Report. https://s202.q4cdn.com/977000893/files/doc_financials/2023/ar/SN-2023-Annual-Report-Final.pdf
5Source: Statista. https://www.statista.com/outlook/cmo/household-appliances/worldwide
6Source: SharkNinja Q1 2024 Results. https://ir.sharkninja.com/financials/quarterly-results/default.aspx.
7Past performance is not an indicator of future performance and current or future trends. The growth rate predictions are only predictions and cannot be guaranteed to happen in future.
8Source: SharkNinja Q2 2024 Results. https://s202.q4cdn.com/977000893/files/doc_news/SharkNinja-Reports-Second-Quarter-2024-Results-2024.pdf
9The stock is shown for illustrative purposes only and is not an investment recommendation.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. Specific investments described herein do not represent all investment decisions made by the manager. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Investors could lose some or all of their investments.

The foregoing views contains forward-looking statements relating to the objectives, opportunities, and the future performance of the markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.

Paul Markham

Investment Director
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